LIAO CHEN TOH v. LOYAL INTERNATIONAL ENTERPRISES CO. LTD AND OTHERS

HCA 2302/2014

[2021] HKCFI 164

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2302 OF 2014

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REASONS FOR DECISION

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I.   Introduction

1.  After hearing the parties on 1 June 2020, I handed down my decision with brief oral reasons on 2 June 2020 and informed the parties that I would be handing down more detailed reasons in writing, which I now do.

2.  On 22 March 2016, upon the inter partes application of the 1^st and 2^nd plaintiffs by counterclaim (unless otherwise stated, I shall refer to parties by reference to the counterclaim since these Reasons for Decision are concerned primarily with the counterclaim), Lok J made two proprietary injunction orders inter alia restraining the 2^nd defendant (“Silver State”) from disposing of or otherwise dealing with two sums of money, namely, USD 87.26M and USD 5.59M (collectively, the “said Sums”), which had been transferred from the 1^st and 2^nd plaintiffs’ bank accounts respectively with the Bank of China (Hong Kong) Limited to Silver State’s account no. 334903 (“SSL’s Account”) with the Hong Kong branch of UBS AG (“UBS”) in the period between July and October 2012 “and/or their fruits or proceeds (if any)” (collectively, the “Injunction Orders”).

3.  The Injunction Orders contained the usual ancillary disclosure orders for injunctions of this nature, namely, that Silver State and the 1^st defendant (“Mr Liao”), “…must disclose all facts within their knowledge and a copy of all documents in relation to the whereabouts of [the said Sums] and/or their fruits or proceeds (if any)” (the “Ancillary Disclosure Orders”).

4.  On the same day, Lok J also made what is commonly referred to as a Bankers Trust order (after the English Court of Appeal decision in Bankers Trust Co v Shapira [1980] 1 WLR 1274) requiring UBS inter alia to make available to the plaintiffs for inspection hardcopies of any records (including documents or records that are stored electronically, on microfiche or by any other means) in the possession custody or power of UBS relating to,

“…the immediate destinations and/or immediate recipients of any money or assets transferred in and out of and any amounts standing in [SSL’s Account] and any subsequent transfers of any amounts from [SSL’s Account] to other accounts in the name of Silver State… held with UBS, but excluding underlying documents relating to money or assets transferred in and out of [SSL’s Account] arising from investments made through [SSL’s Account] (including but not limited to dividend payments and the purchase of securities), from 4 July 2012 up to the date of service of [the] Order…” (the “Bankers Trust Order”).

5.  I should mention at this juncture that SSL’s Account includes at least two sub-accounts, namely, (334,903/00,17 (“SSL’s Sub-account 17”) and 334,903/00,35 (“SSL’s Sub-account 35”), although the orders by Lok J (the “Lok J Orders”) did not distinguish between them. In my view, references to SSL’s Account in the Lok J Orders, unless otherwise stated, must include all of its sub-accounts.

6.  The background and events leading up to the Lok J Orders are set out in his Lordship’s Reasons for Decision dated 30 March 2016 and are not repeated here. There has been no appeal against any of the Lok J Orders. For convenience, unless otherwise stated, I adopt the abbreviations in those Reasons for Decision.

7.  On 6 July 2016, DHCJ Seagroatt granted leave to serve the Injunction Orders on Mr Liao in Taiwan, which were successfully served on Mr Liao personally only on 17 April 2017. On 25 April and 12 July 2017, Mr Liao filed his 10^th and 11^th affirmations respectively in purported compliance with the Ancillary Disclosure Orders. These affirmations exhibited inter alia a number of bank statements, but which contained numerous redactions.

8.  On 12 December 2017, the plaintiffs issued a Summons for further disclosure orders against Mr Liao and Silver State pursuant to the Ancillary Disclosure Order (the “2017 Disclosure Summons”). Paragraphs 1(a) to (c) of the 2017 Disclosure Summons seek orders for disclosure of unredacted versions of the bank statements exhibited to Mr Liao’s 10^th and 11^th affirmations. On the same day, the plaintiffs also issued a Summons for a further Bankers Trust order (the “2017 Bankers Trust Summons”) requiring UBS to disclose, inter alia, unredacted versions of the aforementioned bank statements.

9.  Mr Liao subsequently exhibited the unredacted versions of the bank statements in his 12^th affirmation filed on 31 May 2018. In the circumstances, paragraphs 1(a) to (c) of the 2017 Disclosure Summons are no longer in issue, leaving only the question of costs, which I shall come back to later. The remaining paragraphs of the 2017 Disclosure Summons remain contested.

10.  As to the 2017 Bankers Trust Summons, Dr William Wong SC, appearing together with Mr Justin Lam for the plaintiffs, indicated in his skeleton argument that in the light of Mr Liao’s 12th Affirmation, he would no longer pursue the Summons. However, as Mr Anson Wong SC, appearing together with Mr Martin Kok, for the 1^st, 2^nd, 4^th and 6^th defendants (whom I shall refer to collectively as the “defendants”) pointed out, the scope of the 2017 Bankers Trust Summons is wider than merely seeking the unredacted versions of the bank statements. Further, it was only in Dr Wong SC’s skeleton argument some two years later that the plaintiffs indicated that they would no longer pursue the 2017 Bankers Trust Summons. This was fairly accepted by Dr Wong SC and is a matter that will have a bearing on costs, which again I shall come back to later.

11.  On 17 December 2018, the plaintiffs issued another two summonses, arising from inter alia information gathered from the unredacted bank statements:

(1)  The first seeks orders against Mr Liao, Silver State, Loyal (HK) International Limited (“Loyal HK”) (the 4^th defendant) and Loyal Group Trading Co. Ltd., (“LGT”) (the 6^th defendant) (the “said defendants”) for the disclosure of further documents (the “2018 Disclosure Summons”), consisting primarily (but not exclusively) of further bank statements and other banking documents; and

(2)  The second is a summons for a further Bankers Trust order requiring UBS to produce directly the bank statements and other banking documents sought against the defendants in the 2018 Disclosure Summons (the “2018 Bankers Trust Summons”).

12.  I raised with Dr Wong SC at the hearing the overlap between the 2018 Bankers Trust Summons and the 2018 Disclosure Summons. He referred me to paragraph 44 of the Reasons for Decision of Lok J dated 30 March 2016, where the Judge explained that, given that “…there has been a complete breakdown of trust between the 2 camps [and] in order to avoid further complication, it would be more desirable to order UBS to provide the information directly to the 1^st and 2^nd plaintiffs.” Dr Wong SC further explained that the 2018 Disclosure Summons, insofar as it covers to the same material as the 2018 Bankers Trust Summons, was necessary as some of the documents sought date back to 2012, and therefore may no longer be retained by UBS under the so-called “seven-year rule”.

13.  The plaintiffs’ case is straightforward – the documents sought in the 2017 and 2018 Disclosure Summonses are required to enable proper compliance with the Ancillary Disclosure Orders, where Mr Liao and Silver State are required, as mentioned above, to make disclosure of “…all facts within their knowledge and a copy of all documents in relation to the whereabouts of the [said Sums] and/or their fruits or proceeds (if any)”. I shall come back to the particulars of the classes of documents sought below.

14.  Dr Wong SC premised the plaintiffs’ applications on the Court’s inherent and equitable jurisdiction to give effect to the Injunction Orders (see e.g. A v C [1981] 1 QB 956 at 958E to 959E) as opposed to discovery under RHC Order 24. He submitted that the summonses were merely to enforce proper compliance with the Ancillary Disclosure Orders, which have not been appealed against and should not be relitigated at the hearing before me.

15.  I agree that it is not open to the defendants at this stage to relitigate issues concerning the Ancillary Disclosure Orders that were or could have been raised before Lok J. However, the matter is perhaps not quite as straightforward as suggested by Dr Wong SC, as a number of documents now sought in the summonses do not fall strictly within the confines of “…documents in relation to the whereabouts of the [said Sums] and/or their fruits or proceeds…” Rather, those documents are sought inter alia to ascertain or verify the purpose and circumstances surrounding certain transfers and transactions involving the said Sums and their proceeds and to enable a tracing analysis where the mixing of funds have occurred. In relation to those documents, it seems to me that this court exercises an independent discretion whether to order disclosure.

II.   Applicable Principles

16.  As Lord Millett explained in Foskett v McKeown [2001] 1 AC 102 at 127B-D, the process of ascertaining what has happened to a plaintiff’s assets involves both tracing and following:

“These are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner. In practice his choice is often dictated by the circumstances…”

And at 128C-F:

“Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant’s property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset.”

17.  As emphasised by Mr Wong SC, there is an important distinction between, on the one hand, ancillary orders in aid of interim orders to preserve assets in which a plaintiff claims to have an equitable proprietary interest (which I shall refer to as “the original assets”) and their potentially traceable proceeds, and on the other, orders for discovery at the stage of taking accounts and conducting inquiries to enable the plaintiff to trace and establish his claim to any traceable proceeds after the plaintiff’s interest in the original assets has been determined in his favour.

18.  The function of the former is to enable a plaintiff and the court to ascertain at an early stage what (if anything) has happened to the original assets and their potentially traceable proceeds (if any). This is to enable interim preservation orders of such assets and proceeds to be effective, since such orders would have little force if neither the court nor the parties are aware of the identity and whereabouts of the assets sought to be preserved.

19.  In the most straightforward case, the original asset remains intact and their whereabouts are known to the plaintiff. A copy of the preservation order can simply be served on the defendant and any third parties in whose hands the original asset is situated. The order in such a case would set out the particulars of the assets and their whereabouts so that it will be clear to the defendant and/or any third parties precisely what has been ordered to be preserved pending the trial of the action or further order of the court.

20.  However, cases are rarely so straightforward, especially when the original assets comprise monies or other fungible assets. The original asset will likely have changed hands and/or have been substituted for new assets, often more than once. The plaintiff will usually not have any or any up-to-date knowledge as to the whereabouts of the original assets or their potentially traceable proceeds at the time of his application for interim preservation orders. Hence, an order might be framed, as in the present case, along the lines of restraining the disposition of the original assets “and/or their fruits or proceeds (if any)”. As mentioned above, however, such an order would not be able to achieve its objective if neither the court nor the parties are clear as to the identity and whereabouts of the assets sought to be preserved.

21.  It will thus be necessary to ascertain from the defendant and sometimes third parties through compulsory orders what has happened to the original assets and their potentially traceable proceeds. The courts have long recognised these to be strong orders. However, it is said that the courts of equity have “…never hesitated to use the strongest powers to protect and preserve a trust fund in interlocutory proceedings on the basis that if the trust fund disappears by the time the action comes to trial, equity will have been invoked in vain.” (see e.g. A v C (supra) at 350h-j).

22.  Such orders serve also an important subsidiary purpose. It is trite law that an injunction order, breach of which may have penal consequences, should be framed precisely so that parties subject to the order and relevant third parties know precisely what they can and cannot do. As mentioned above, in the most straightforward case, this presents little difficulty as the assets will have been clearly identified in the preservation order. In other cases, however, where what is sought to be preserved is simply described as the “fruits or proceeds” of the original assets, it is far from clear what such fruits or proceeds comprise. Clear and adequate disclosure is therefore important to enable the defendants and relevant third parties to know what exactly is covered by the interim preservation order.

23.  Moreover, after a plaintiff has considered the information and materials obtained through ancillary disclosure orders and is in a position to identify and ascertain the whereabouts of what he claims to be potentially traceable proceeds of the original assets, he should come back before the court if necessary to vary or refine the interim preservation order so as to particularise what those assets and proceeds are. The defendant and any third parties in possession of those assets would then have an opportunity to be heard on whether particular assets should be included in the preservation order (assuming such issues have not already been addressed). Potential arguments against inclusion would include, for instance, that the proceeds have been received by a bona fide third party for value without notice, or that any proprietary interest in the proceeds has been otherwise extinguished. Of course, at the interlocutory stage, the usual American Cyanamid principles apply, and the plaintiff needs only to show a serious issue to be tried on the merits and that the balance of convenience is in favour of preservation - there should not be a mini-trial on affidavits.

24.  As mentioned above, some of the documents sought in the 2017 and 2018 Summonses are not concerned solely with the identity and whereabouts of the said Sums, but also the purpose and circumstances surrounding certain transfers and transactions involving the said Sums and their proceeds. Such information may be relevant even at the stage of interim preservation:

(1)  For instance, if the original assets or their proceeds have been transferred to third parties, explanations and supporting documentation as to the reasons for such transfers may be necessary to enable a plaintiff to decide whether to follow the original assets or to trace into substitute assets for the purpose of interim preservation (sometimes it may even be possible to preserve both pending the plaintiff’s election which to claim after the trial – see e.g. Classroom Investments Inc. v HK Wanshitaiping Investment and Management Limited & Ors (unreported) HCMP 577/206, 10 June 2016 at §28). Whether such information is necessary will depend upon all the circumstances including, inter alia, whether it is likely that the transfer was made pursuant to a genuine transaction, the terms of such transaction and the substitute value (if any) obtained;

(2)  Similarly, where mixing of trust and other assets has occurred, “there is all the more reason” why the court may require disclosure to enable a plaintiff more effectively to trace into the mixed assets and preserve them pending the trial of the action (see e.g. Wason and Ors v BHP International Markets Ltd and Anor (unreported) HCA 1692/2014, 20 March 2015^[1] at §63);

Needless to say, the extent of disclosure necessary (if any) at the interim preservation stage will depend on the facts of each case – the purpose being to make the order effective so that traceable assets will be preserved and available for enforcement should the plaintiff ultimately succeed in his claim. On the other hand, the intrusive nature of such orders requires the court to consider carefully the potential prejudice caused to the defendants and a fortiori third parties, as that the court has yet to adjudicate fully the matter on the merits of the plaintiff’s claims.

III.   The Defendants’ General Arguments Against Further Disclosure

25.  Mr Wong SC raises three general grounds in objection to the summonses:

(1)  First, given the interim nature of the preservation and ancillary disclosure orders, the court needs to strike a balance between the respective rights and interests of the parties. The true ownership of the said Sums will only be determined at the trial of the action, and in the event that the plaintiffs succeed, they will have the opportunity for discovery to trace and claim against any traceable proceeds of the said Sums. At this stage, the balance of convenience lies against further disclosure;

(2)  Second, there has been significant delay on the part of the plaintiffs which should be taken into consideration in the Court’s exercise of its discretion. There are two aspects to the delay: (1) delay in issuing the summonses; and (2) delay on the in the overall conduct of the action; and

(3)  Third, as the alleged trust assets are monetary, there is nothing to suggest that the defendants are not in a position to fully compensate the plaintiffs by way of damages should the plaintiffs succeed at the trial. In the circumstances, there is no pressing need to trace and preserve the said Sums and their proceeds.

I shall deal with each in turn.

Balance of Convenience

26.  It is undoubtedly correct that the court balances the respective rights and interests of the parties when making interim injunction orders, including orders for preservation of assets and for disclosure of information. In respect of the latter, a plaintiff will naturally wish to obtain as much information and supporting documents as he can so that he can perform a thorough investigation at an early stage. On the other hand, there will inevitably be inconvenience and prejudice to a defendant in having to comply with compulsory disclosure orders at the interlocutory stage. The court’s equitable discretion is wide and flexible, but the discretion is a principled one, and it must guard against being used as an instrument of oppression, such as, for instance, allowing a plaintiff to conduct a roving inquiry into the defendant’s affairs in search of other potential claims the plaintiff may have against him.

27.  The same balancing exercise applies whether disclosure is sought against the defendant personally or against a third-party bank with which the defendant (or intended defendant) holds an account (i.e. a Bankers Trust order). Applications for such orders are often made (albeit not in the present case) without notice to the party whose banking records are being sought. The application may be inter partes in the sense that the respondent to the application, namely, the bank, will have been served with the application (usually an originating summons). The practice of the bank in such cases is almost invariably to adopt a neutral position as long as its legal costs and costs of compliance are provided for. However, the true prejudice potentially caused by such orders is not (at least in most cases) the bank but the account holder whose privacy is being intruded upon. In such circumstances, it is incumbent on the applicant to justify the necessity of an order being made without notice to the account holder, and the court will need to balance the respective interests of the applicant and the account holder, and not merely the bank.

28.  In the present case, whilst it is undoubtedly correct that the ownership of the said Sums will only be determined at the trial of the action, there is no dispute that Mr Liao caused the said Sums to be transferred out of the plaintiffs’ accounts. As Lok J rightly observed at paragraph 32 of his Reasons for Decision, “Unless and until the beneficial ownership of [the said Sums] is resolved [in favour of Mr Liao] at the trial, the [plaintiffs] are prima facie the respective owners of [the said Sums]”.  That being the case, the plaintiffs must in my view be regarded as having a strong and legitimate right even at this stage to ascertain precisely what has happened to prima facie their own monies, with the aim of preserving them or their traceable proceeds pending the outcome of the action.

29.  As to the prejudice relied upon by the defendants, Mr Wong SC submitted that if Mr Liao succeeded in proving his case at trial that he was the beneficial owner of the plaintiffs and the said Sums, he would have been entitled to deal with them as he wished. It would thus be unfair, he submitted, to require him to give detailed disclosure of how he dealt with his own monies. Mr Wong SC did not suggest, however, that other than general inconvenience and privacy concerns, making the disclosure sought would cause the defendants any particular hardship or that there were special sensitivities to the information and documents that would cause them loss or damage if disclosed to the plaintiffs.

30.  Whilst I accept that there is inevitable inconvenience in being required to disclose one’s private dealings, such prejudice alone carries rather less weight when the dealings are concerned with assets, or assets mixed with those, prima facie belonging to another. Moreover, it is not insignificant that much of the disclosure sought in the present case relates, on the defendants’ own evidence, to the operations of the Loyal Group or, in Mr Liao’s own words, “the business under the umbrella of the [plaintiffs]”. In the circumstances, notwithstanding that Mr Liao and those individuals behind the plaintiffs are in different camps, disclosure here would likely carry less prejudice than between unrelated parties. As I observe in paragraph 61 below, however, whether to order the preservation of traceable proceeds within related group entities may be another matter.

31.  In any event, any disclosure in these circumstances would be under compulsion, and the plaintiffs are thus bound by the usual implied undertaking that the information and documents obtained cannot be used for any purpose other than this action without the leave of the Court. Although the Lok J Orders did not record such an express undertaking, Dr Wong SC did not dispute that such an undertaking would be implied.

32.  I should add that in a case where the disclosure sought involves particularly sensitive commercial or personal information, an undertaking from the plaintiff may sometimes be insufficient to allay legitimate concerns of the defendant as to potential misuse. In such cases, the Court may consider a “ring fence” arrangement whereby the information required would only be disclosed to the plaintiff’s legal advisers and other designated persons, with an undertaking from them that they would not release the information to the plaintiff without the leave of the court. As Dr Wong SC rightly submitted, however, it has not been suggested in the defendants’ evidence that the information and documents sought in the 2017 and 2018 Summonses fell within such a category, and therefore, no justification has been shown for any such arrangement.

The Plaintiffs’ Delay

33.  As mentioned above, Mr Wong SC raises two independent grounds of delay. Insofar as delay in the issue of the summonses is concerned, he complains of two periods of delay:

(1)  The first is a period of some 5 months from 12 July 2017, when the defendants filed Mr Liao’s 11^th affirmation, to 12 December 2017, when the Plaintiffs issued the 2017 Disclosure Summons; and

(2)  The second is a period of some 7 months from 31 May 2018, when the defendants filed Mr Liao’s 12^th affirmation, to 17 December 2018, when the plaintiffs issued the 2018 Summons.

34.  In this respect, Mr Wong SC submits that given that these summonses concern interim injunctive relief, it is incumbent upon the plaintiffs to act expeditiously to protect their rights. The fact that they have adopted a relatively leisurely pace implicitly suggests that the disclosure sought is not that important after all. Mr Wong SC also pointed out that the documents adduced in the 11^th and 12^th Affirmations were not voluminous such that it would have required the plaintiffs or their advisers a long period of time to consider and analyse them or to determine the need for further disclosure.

35.  I accept that in applications for equitable relief, delay is always a factor in the exercise of the Court’s discretion, whether this is to enforce existing orders or to obtain further related orders. However, as Eichelbaum J observed in Monsanto Co v Stauffer Chemical Co [1984] FSR 559 at 571:

    “Further, and without wishing to detract from the proposition that equitable relief needs to be sought promptly, it is not sufficient for a defendant to show that the applicant has delayed unreasonably. It must be shown that because of that delay, it would be unreasonable to grant the remedy; that it has become practically unjust to do so. As Megarry J. said in Legg v. Inner London Education Authority [1972] 1 W.L.R. 1245:

“What seems to me important is not so much the length of the delay per se, but whether the delay has in some ways made it unjust to grant the injunction claimed.” (pp. 1259–1260).”

     And see Lindsay Petroleum Co. v. Hurd (1874) L.R. 5 P.C. 221, 240 and Spry, Equitable Remedies, 2nd Ed., pp. 405, 454–455.”

36.  Dr Wong SC fairly conceded that there has been some delay in this regard but contended that, when viewed in the context of the case as a whole, the delays have not been so serious as to disentitle the plaintiffs to the orders they seek. I would also note that the defendants have not identified any real prejudice caused by the delay, although this is of course not conclusive. Having considered the matter in the round, I agree with the plaintiffs that whilst they could have proceeded more expeditiously, the delay is not so serious as to be fatal to their applications.

37.  As to the delay in the progress of the action, there is no dispute that insofar as the counterclaim is concerned, no further pleadings have been exchanged since July 2017, and no further steps have been taken to progress the counterclaim. Mr Wong SC referred to the well-known principle that a party who has obtained the benefit of an interlocutory injunction is under a duty to proceed expeditiously. In reply, Dr Wong SC contended that pleadings for the action have not formally closed as the defendants filed a counterclaim to counterclaim on 16 May 2016 (amended on 14 July 2017), which included a number of additional defendants situated in Mainland China, and these defendants have yet to be served. I was referred to RHC Order 18 r. 20 and Hong Kong Civil Procedure 2020 at §18/20/1 citing the decision of the Court of Appeal in Hongkew Holdings Ltd v Kongson Securities Ltd (unrep., CACV 115/1992, [1992] HKLY 819) for the principle that pleadings are never deemed closed vis-à-vis certain plaintiffs or defendants in an action and not others.

38.  I thus enquired with Mr Wong SC as to the status of these defendants to the counterclaim to counterclaim and whether leave has been obtained to serve them in Mainland China. He informed me that no leave has yet been sought. In my view, it is rather unsatisfactory that parties have been named in an action for some 3 years with no attempts to serve or even to obtain leave to serve them outside of the jurisdiction.

39.  It is now well established under RHC Order 1A that all parties and their respective legal representatives have a duty to ensure that a case is dealt with as expeditiously as reasonably practicable. Moreover, Mr Liao is the plaintiff by original claim in this action, and as such, he is also under a duty to prosecute the original action, which Mr Wong SC accepted has effectively been merged into the counterclaim to counterclaim. This is even more reason why the defendants should have proceeded expeditiously with the counterclaim to counterclaim, including serving the Mainland Chinese defendants.

40.  It appears to me, therefore, that both sides bear some responsibility for the delay in the progress of this action. There is no reason why any of the parties could not have issued a case management summons for directions. None of the parties has done so, and as I understand from counsel, none of them has even issued correspondence to inquire as to the progress of the action. In the circumstances, whilst delay in this regard is undoubtedly a relevant factor to be taken into account, I do not find in this case that it is sufficient by itself to deprive the plaintiffs of the reliefs sought in the summonses. I should mention here that at the end of the hearing, I gave directions to the parties for the future conduct of the action so that there would be no further delay.

Alleged ability of the defendants to compensate the plaintiffs

41.  In support of this ground, Mr Wong SC referred me to the Court of Appeal decision in Wason Holdings Ltd and Others v BHP International Markets Limited [2018] HKCA 113, where the Court of Appeal set aside an interim proprietary injunction in respect of certain shares and their proceeds on the grounds that the balance of convenience lay against the injunction sought. Barma JA (with whom Yuen JA agreed) held at §38:

“Given that the shares have been sold, the effect of the injunction could be to secure a sum of money whether the cash proceeds of the sale of the shares, or the eventual proceeds of any further loan to other customers of the 1^st defendant which could be identified as having been made using those proceeds to satisfy any judgment the plaintiffs might ultimately obtain. However, given the nature of the business operated by the 1^st defendant, requiring it to set aside a sum of money, which it would be prevented from deploying in its business, would be likely to have a significant adverse impact. On the other hand, from the plaintiffs’ point of view, whatever judgment they may obtain at the end of the day is likely to involve the payment of money to them. Where that money comes from is ultimately of little consequence to the plaintiffs. Although their claim may be characterised as proprietary, in the particular circumstances of this case, it is nonetheless a claim to money. Unless there is reason to think that the 1^st defendant will be unable to meet such a claim, there is no particularly pressing need for money to be kept aside to meet it. With respect to the judge, while he was correct to say that the 1st defendant did not have much in the way of assets in Hong Kong, it did not follow that the 1st defendant’s assets overall (although possibly not very liquid) were not adequate to enable the plaintiffs’ claims to be met. The amount of the claim against the 1st defendant is not simply the value of the shares that were sold – credit must be given for the USD 22,867,382 advanced as a loan to the 1st plaintiff, which had not yet been repaid. This would substantially reduce any amount payable to the plaintiff, making it all the more likely that the 1st defendant, would be able to meet the claim if successful.”

42.  Mr Wong SC submits that the considerations of the Court of Appeal in Wason are equally applicable to the present case - although the plaintiffs’ claim for the said Sums is a proprietary one, it is nonetheless for sums of money, and there is no evidence that Mr Liao and the other defendants are not in a position to make good that amount.

43.  First, I agree with Dr Wong SC that this ground should have been raised at the hearing before Lok J and cannot be relitigated here. The observations of the Court of Appeal in Wason were made in the context of an appeal from an interlocutory injunction. As mentioned above, there has been no appeal from the Lok J Orders, and there is no application before me to vary or discharge the Injunction Orders or Ancillary Disclosure Orders on such ground. As long as the Injunction Orders remain in effect, it must be open to the plaintiffs to seek such ancillary orders as may be reasonably necessary to ensure that they be given proper effect.

44.  Moreover, the suggestion that the plaintiffs may be fully compensated by way of damages is a matter that was raised for the first time by Mr Wong SC, and there is no evidence before the Court in opposition to the summonses as to Mr Liao’s financial position and whether he is in a position to compensate the plaintiffs from sources other than the said Sums or their proceeds. Mr Wong SC seeks to rely on the dicta (cited above) in Wason to contend that the burden lies on the plaintiffs to show that the defendants are not in a position to compensate them in damages. However, as mentioned above, the Injunction Orders were made over 4 years ago and have not been challenged. Moreover, the facts of the present case are plainly distinguishable from Wason. In that case, the main defendant was a commercial lender, and the amount of the plaintiffs’ claim was substantially less than the value of the shares said to have been wrongly sold, as credit had to be given for the loan in respect of which the shares were pledged as security, which had not yet been repaid.

45.  In any event, I do not think that the Court of Appeal was laying down a general principle in Wason that a plaintiff must show in each case that the defendant is financially incapable of compensating him in damages before an injunction can be granted in respect of monies to which the plaintiff asserts a proprietary claim. Each case must turn on its own facts as to where justice and convenience lies. An important factor in the present case, as Lok J observed, is that the plaintiffs are prima facie the owners of the said Sums.

IV.   2017 Disclosure Summons

Scope of the documents sought

46.  In addition to the three general grounds discussed above, Mr Wong SC also raised a number of objections to the individual documents or classes of document sought in the summonses.  I examine each of these in turn.

Paragraph 1(i) – the insurance policies

47.  In his 10^th affirmation, Mr Liao accepted that a total of USD47,523,000 had been remitted from SSL’s Account to his personal UBS account no. 333517 (“Mr Liao’s Account”) in the period from 20 September 2012 to 15 October 2012. I should mention here that from the bank statements disclosed, Mr Liao’s Account includes at least two sub-accounts, namely, 333,517/00,18 (“Mr Liao’s Sub-Account 18”) and 333,517/00,36 (“Mr Liao’s Sub-Account 36”), between which Mr Liao did not differentiate in his evidence.

48.  Of the USD47,523,000, USD16,000,000 was remitted onwards to UBS account no. 334910 of LGT (“LGT’s Account”) supposedly, “…to fund the operation of the business under the umbrella of [the plaintiffs].”

49.  On 4 and 9 October 2012, Mr Liao remitted USD11,742,011 and USD8,310,679 respectively to Manufacturers Life Insurance Co (“Manulife”) and Sun Life Assurance Company (“Sun Life”) as single premium payments for two life insurance policies (the “Policies”). By a letter dated 30 June 2017 (the “KWM Letter”), which was exhibited to Mr Liao’s 11th affirmation, the defendants’ solicitors, King & Wood Mallesons (“KWM”), in response to queries raised by the plaintiffs’ solicitors, further disclosed that inter alia (1) Mr Liao is the sole beneficiary of the Policies; (2) the Policies remain valid until they are revoked by Mr Liao or when Mr Liao passes away; and (3) no payment has been made under the Policies, nor have the Policies been terminated. In Mr Liao’s 12th affirmation filed after the 2017 Disclosure Summons, he exhibited very brief extracts of each of the Policies, but which do not set out any of their key terms.

50.  Paragraph 1(i) thus seeks disclosure of “all facts within [Mr Liao] and Silver State’s knowledge in relation to the particulars of the… Policies and a copy of all documents in relation to the [Policies] in the possession, custody and/or power of [Mr Liao] and/or Silver State, including but not limited to a copy of the [Policies]”.

51.  Mr Wong SC submits that the whereabouts of the sums paid to the insurance companies have now been disclosed and there is no risk that the insurance companies will dissipate them. He therefore objects to any further disclosure on the grounds that additional information and documents are unnecessary. With respect, I disagree.

52.  As I have mentioned above, Mr Liao’s evidence and the extracts produced do not disclose any of the key terms of the Policies including, for instance, the circumstances in which the Policies may be revoked. Further, given the very substantial amount of the upfront premiums, such sums are likely to be invested during the lifetime of the Policies, and it is possible, if not likely, that Mr Liao will have some degree of control as to how the sums are to be invested. This, in turn, may have an impact on the realisable value of the Policies. If it transpires that the premiums have been invested in higher risk investments, it may be open to the plaintiffs to seek directions from the court for instructions to be given to the insurers for the sums to be invested in safer investments (assuming this is permitted under the terms of the Policies), pending the trial of the action. Hence, disclosure of the terms of the Policies is necessary in my view for the Injunction Orders to be given proper effect. As to other related documents sought, these are unlikely to be voluminous, and Mr Liao has also not contended in his evidence any difficulties in disclosing them. On balance, therefore, I believe that the disclosure sought in the paragraph is reasonably necessary to give proper effect to the Injunction Orders. I therefore made an order in terms of paragraph 1(i).

53.  I should also mention at this juncture that the Policies are a good example of why the Injunction Orders should be varied or refined so that the Policies can be specifically identified in the orders themselves. There is no serious dispute between the parties at this stage that the Policies were purchased with monies traceable to the said Sums. However, neither Manulife nor Sun Life would have any knowledge of this fact when served with the Injunction Orders restraining each of them from “knowingly to assist in or permit” the defendants from disposing or dealing with the said Sums “and/or their fruits or proceeds”. It is highly unsatisfactory that third parties, such as the insurers in this case, should be left guessing whether the Policies should be caught within the term “fruits or proceeds”.

Paragraphs 1(d) to (g) - Richstar

54.  In Mr Liao’s 10^th affirmation, he disclosed that the sum of USD59,427,000 was remitted from Silver State’s UBS account to LGT’s Account. Of that amount, USD16,000,000 was remitted through Mr Liao’s Account (as mentioned above), and USD12,200,000 was remitted through another account of LGT, namely, UBS account no. 334902 (which has since been closed) (“LGT’s Closed Account”).

55.  Mr Liao is and has at all material times been a director and the sole shareholder of LGT – it is the plaintiffs’ case that he holds the shareholding on trust for the Loyal Group as a whole, a matter which is denied by Mr Liao.  I should also mention here that from the bank statements disclosed, LGT’s Account includes at least two sub-accounts, namely, 334,910/00,15 (“LGT’s Sub-account 15”) and 334,910/00,33 (“LGT’s Sub-account 33”), between which Mr Liao does not differentiate in his evidence.

56.  Mr Liao disclosed that in the period between November 2012 and March 2013, sums totalling some EUR48.1 million were remitted from LGT’s Account (which can be seen from the statements as being from LGT’s Sub-account 33) to a company known as Richstar International Limited (“Richstar”). He explained that the payments were made for the purchase of styrene monomer, a type of raw material necessary for the operation of the Loyal Group’s business in Mainland China. No details or supporting documents of the purchases were disclosed.

57.  Dr Wong SC sought to cast doubt on the genuineness of the transactions not only on the grounds of lack of particulars, but also that Richstar’s business address was shared with numerous other companies and appeared to be that of a company secretarial service or shared office facility. Moreover, Dr Wong SC submitted that even if the sums paid to Richstar were in fact for the acquisition of raw materials, the plaintiffs should still be entitled to trace into the inventory of styrene monomer (or possibly, the processed goods) still in the hands of the defendants or related third parties. Hence, the plaintiffs seek information and documents concerning (1) particulars of the contact person at Richstar (paragraph 1(d)); (2) place of incorporation of Richstar (paragraph 1(e)); addresses of Richstar known to Mr Liao and Silver State (paragraph 1(f)); and details of the raw materials purchased from Richstar, including quantities, price, dates of purchase and place of delivery and details on the use and disposition of the materials (paragraph 1(g)).

58.  Mr Wong SC contended, however, that such disclosure was unnecessary and unreasonable. First, the Ancillary Disclosure Order only required the defendants to disclose where the proceeds of the said Sums have gone, and this had been complied with by Mr Liao by disclosing that the sums had been paid to Richstar. There is no reason to believe, he submits, that the transactions were not genuine, and disclosure of the details and supporting documentation of the purchases was unnecessary and potentially oppressive. As to whether the raw materials can still be traced after all these years, KWM explained in the KWM Letter that the raw materials purchased from Richstar, “…were used for the purposes of the group’s business in the PRC, and any profit or loss stayed with the particular subsidiaries which received the raw materials. It is not possible to segregate any income figures from the general profit and loss of the business as a whole”.

59.  As mentioned above, if the original asset or its proceeds have been transferred to a third party, depending upon inter alia the amount and identity of the third party, an explanation and supporting documentation as to the reasons for the transfer may be necessary. In the present case, very substantial amounts have been transferred to Richstar. Other than a bare assertion by Mr Liao that the transfers were for purchase of raw materials, no details of the transactions have been provided. It is also unknown from his evidence Richstar’s background and whether Loyal Group has had any previous dealings with Richstar. Given the amounts involved, the lack of particulars and Richstar’s business address, the plaintiffs’ concerns as to the genuineness of the transactions, on the evidence presently available, cannot be said to be unfounded. I also note that there is nothing in the defendants’ evidence to suggest that they would suffer any serious hardship in making the disclosure sought.

60.  As to any difficulty in tracing the raw materials and/or their derived products or proceeds, this is not a matter that the court can form a clear view at this stage, as much will depend upon the information to be disclosed. For the avoidance of doubt, in respect of these paragraphs (as well as other paragraphs of the summonses which I allowed below), the defendants’ obligation of disclosure is to be qualified by the words, “to the best of their information, knowledge and belief or in their possession, custody or power (as the case may be).”

61.  I should say, however, that if the monies were in fact used to purchase raw materials for the operations of the Loyal Group, I can foresee difficulties in preserving the finished product or their proceeds (if this is even possible).  The monies would likely have been used for the benefit of the Loyal Group as a whole, of which the plaintiffs are themselves members. Irrespective of who is ultimately the beneficial owner of the group, complex issues may arise as to the relationships and respective roles of the various entities within group. These are not matters that I can or need resolve at this stage. Suffice it to say that the situation is quite different from, for instance, the use of the monies to purchase the Policies of which Mr Liao is the beneficiary. The purpose of disclosure is to enable the plaintiffs (and the court) to have greater insight as to what has happened to the funds which prima facie belonged to the plaintiffs. It is then up to the parties what if any further applications should be made to the court.

62.  Having balanced the respectively interests of the parties, I allowed the disclosure sought in these paragraphs, subject to a minor amendment to the wording of paragraph 1(g).

Paragraph 1(j) – Capital call issue

63.  As disclosed in Mr Liao’s 10^th affirmation, a sum of USD1.9 million traceable to the said Sums was remitted to the account of Loyal HK on 3 July 2012. Loyal HK is a wholly owned subsidiary of LGT.

64.  Mr Liao explained that this sum was then remitted onwards to the account of Loyal International Trading (Jiangyin) Co. (“Loyal Jiangyin”), “as part of capital call.” In the KWM Letter, KWM stated that “at the material times”, Loyal HK was a shareholder of Loyal Jiangyin and that “a capital call is a capital call”. KWM thus rejected the request from the plaintiffs’ solicitors for any further information concerning the capital call on the grounds that the request was “unclear and/or not readily comprehensible”. No further information was provided in Mr Liao’s 12^th affirmation.

65.  Paragraph 1(j) therefore seeks disclosure of, “All facts within [Mr Liao] and Silver State’s knowledge and a copy of all documents in relation to the alleged capital call by [Loyal Jiangyin]… including but not limited to: (i) the date of the capital call; (ii) all corporate documents by [Loyal Jiangyin] in relation to the capital call; and (iii) particulars of the shareholding held by [Loyal Jiangyin]; changes in such shareholding as a result of the capital call (if any).”

66.  In opposition to the disclosure sought, Mr Wong SC again submitted that the Ancillary Disclosure Orders only required that the defendants disclose the whereabouts of proceeds traceable to the said Sums, and as Mr Liao had already disclosed that a portion of such proceeds had been paid to Loyal Jiangyin, no further disclosure was necessary. Mr Wong SC accepted, however, that without the disclosure sought, it would not be possible for the plaintiffs to verify the alleged capital call or to ascertain whether, and if so how many, shares of Loyal Jiangyin had in fact been allotted to Loyal HK as a result of the capital contribution. These additional shares, if any, may also be caught by the Injunction Orders as part of the “fruits or proceeds” of the said Sums.

67.  Irrespective of whether the terms of the Ancillary Disclosure Orders are confined merely to disclosing that the USD1.9 million was paid to Loyal Jiangyin pursuant to the alleged capital call, as mentioned above, the court has a discretion to order in appropriate circumstances further disclosure of details concerning any alleged transactions or transfers. In my view, the disclosure is reasonably necessary here, and I therefore made an order in terms of paragraph 1(j).

V.   2018 Disclosure Summons

68.  I should mention at the outset that in support of the 2018 Summons and the 2018 Bankers Trust Summons, the plaintiffs filed, inter alia, an affidavit of John Robert Lees (“Mr Lees”) on 9 November 2018. Mr Lees, the managing director of JLA Asia Limited, was engaged by the plaintiffs as an expert forensic accountant to perform a fund tracing exercise to ascertain the movement and utilisation of the said Sums and their proceeds. In his affidavit, Mr Lees attempted to perform a fund flow analysis and identified a number of what he called “missing bank documents” such as bank statements, advices and other supporting documents, without which he was unable to form a complete or reliable picture of the utilisation and/or the recipient(s) of a substantial portion of the said Sums. These “missing bank documents” formed the primary subject matter of the 2018 Disclosure Summons.

69.  In response, the defendants engaged Gabriel Wong of BDO Financial Services Limited who filed an Affirmation on 4 July 2019. In his affirmation, Mr Wong exhibited a report of the same date (“Mr Wong’s Report”). In paragraph 6 of the report, he set out his scope of work as instructed by the defendants’ solicitors, namely:

“(a)  Comment on whether the fund flows of the [said Sums] as stated in [Mr Liao’s] 10^th, 11^th and 12^th affirmations… can be identified based on information and documents provided to me;

   (b)  Perform a fund tracing exercise to identify and report the movement of the [said Sums] to the extent possible;

   (c)  Review and comment on [Mr Lees’ affidavit].”

70.  In his report, Mr Wong also mentioned that there were limitations to his tracing exercise due to missing bank statements for certain accounts which he identified. However, notwithstanding such limitations, he was able to trace more than 99% of the Sum (i.e. USD 92.9M) to its destinations based on the provided bank statements in Exhibit 2 of his report. However, many of the bank statements listed in Exhibit 2 (and section C of Exhibit 1) of his report had not in fact been provided to the plaintiffs and formed the bulk of the “missing bank statements” identified by Mr Lees in his affidavit.

71.  Not surprisingly, this prompted the plaintiffs to request and apply on 2 September 2019 for an order for disclosure of the documents referred to in Mr Wong’s report pursuant to RHC Order 24 r.10 (the “2019 Disclosure Summons”). The defendants’ response, however, was rather surprising. Rather than providing those documents, on 18 October 2019, the defendants filed a 2^nd Affidavit of Mr Gabriel Wong exhibiting a heavily redacted version of his earlier report, redacting inter alia all references to the tracing exercise performed by Mr Wong as well as Exhibit 2. On 4 November 2019, Deputy High Court Judge Dawes granted leave to the plaintiffs to withdraw the 2019 Disclosure Summons, but with costs to be paid forthwith by the defendants.

72.  At the hearing, Mr Wong SC referred to the redaction of Mr Wong’s report as preventing the plaintiffs from “short-circuiting” 2018 summonses. I must say, with respect, that I am not impressed with the defendants’ conduct in this regard, which in my view runs contrary to the spirit if not the letter of the Ancillary Disclosure Orders. The orders plainly required the defendants to “disclose all facts within their knowledge and a copy of all documents in relation to the whereabouts of the Sums and/or their fruits or proceeds”. Mr Wong’s Report and the documents supplied to and used by Mr Wong to perform his now redacted tracing analysis form part of that knowledge. I also agree with Mr Lees’ view that Mr Wong has largely rendered his report “redundant” by the redactions, “…since all that remains of his scope of work is a simple matching exercise between transactions in the disclosed bank and other documents to agree with the fund flows [Mr Liao] has stated in [his affirmations]”.

Paragraphs 1(c), 2(b), 3(c), 4(d) – Call deposit advices

73.  These paragraphs relate to the disclosure of documents referred to as “call deposit advices”. On the bank statements of accounts of Mr Liao, Silver State, Loyal HK and LGT into which sums potentially traceable to the said Sums have been deposited, various entries are described as “increase of call deposit” and “decrease of call deposit”, whereby millions of USD are periodically withdrawn and deposited into the accounts. These entries had previously been redacted and only became apparent from the unredacted versions of the bank statements exhibited to Mr Liao’s 12^th affirmation.

74.  Mr Liao described these entries in his 12^th affirmation inter alia as follows:

“For each bank account, there is a corresponding call deposit account which allows the account holder to earn more interest. All inflows and outflows of funds in a call deposit account will go into or out of the corresponding bank account of the same account holder only. In other words, the transactions of call deposits do not involve any transfer of funds to third parties. The call deposits are, therefore, not relevant to the movement or whereabouts of the [said Sums] and all the call-deposit related entries have been redacted previously…

Where additional funds are transferred from the bank account to the call deposit account, the entry will be described as “increase of call deposit”, while any fund returning from the call deposit account will be described as “decrease of call deposit” in the bank statements. If the entire money in the call deposit is withdrawn, the entry will be shown as “termination of call deposit”.

75.  Dr Wong SC submits that the call deposit advices are necessary to have a more complete picture of the flow of funds into and out of the accounts and to ascertain the amounts of interest earned which would form part of the traceable proceeds of the said Sums. Mr Wong SC, on the other hand, submits that that the advices are unnecessary as the transfers of the sums into and out of call deposits do not result in the funds leaving UBS. Hence, he submitted, the disclosure of these documents is unnecessary to give effect to the Injunction Orders and there is no risk of dissipation on the part of UBS. Although this is perhaps a marginal case, in my view, the documents nonetheless assist to provide a more complete picture of the flow of funds and proceeds traceable to the said Sums. More importantly, the advices would appear to be run-of-the-mill banking documents, and should not be controversial, voluminous or difficult to obtain. On balance, therefore, I also allowed the disclosure of these documents.

Paragraphs 1(e), 4(e) to (h) – the SPEC issue

76.  According to Mr Liao’s 10th and 11th affirmations, on 6 September 2012, he drew a loan of EUR11,237,155.18 from UBS and remitted the sum to LGT “…for the purchase of raw materials for the operation of the business in the PRC”. On 10 September 2012, LGT paid the sum “…to the raw material supplier, SPEC, for the purchase of raw materials”. On 15 October 2012, he repaid the loan due to UBS in the sum of EUR11,248,607.77 (equivalent to USD14,580,030.26) from funds traceable or at least partly traceable to said Sums remitted from Silver State to his account.

77.  From the unredacted UBS bank statements for Mr Liao’s Account exhibited to his 12th affirmation, it can be seen that on 6 September 2012, two payments totalling EUR11,237,155.18 were made from Mr Liao’s Sub-account 36 to LGT. At the time the payments were made, there was only a balance of EUR40,000 in that account. The payments were therefore made possible by a 7-day “time loan” of EUR11,237,155.18 from UBS to Mr Liao dated the same day and which was due on 13 September 2012 (the “First Loan”). The First Loan was repaid with interest on 13 September 2012 using funds from a new 30-day “time loan” due on 15 October 2012 (the “Second Loan”). On 15 October 2012, there was an incoming payment into the account from LGT (it is unclear from which account or sub-account) in the sum of EUR11,248,608.11, which was then on the same day used to repay the Second Loan (with interest).

78.  As pointed out by Mr Lees in his affirmation, there is some inconsistency in Mr Liao’s evidence, in that in paragraph 11(c) of Mr Liao’s 12^th affirmation, he contended that:

“For the time loans with UBS, the funds of the loans came from UBS and are not relevant to the movement of the Sums. As fully illustrated in my 10th Affirmation about the flow of the Sums, none of the [said Sums] have been used to repay the time loans and thus the repayments of the loans are not relevant. These entries have been redacted in the previous disclosure.” (emphasis added)

79.  Mr Lees also pointed out that on 6 September 2012, in addition to the sum of EUR11,237,155.18, an additional amount of EUR6,500,000 was paid to SPEC from LGT’s Sub-account 33.

80.  Hence, in paragraphs 1(e), 4(e) to (h) of the summons, the plaintiffs seek the following: (1) “Particulars as to the final application of the proceeds of [the First Loan] and [the Second Loan] and a copy of all documents in relation thereto”; (2) “The full name of “SPEC” which received the sums of  EUR11,237,155.18 and EUR6,500,000 from [LGT’s Sub-account 33]; (3) The account details (including name of bank and account number) of “SPEC” which received the aforementioned sums; (4) The place of incorporation and place of business of “SPEC”; and (5) “The purpose of the aforementioned transfers to “SPEC” and a copy of all documents in relation thereto.”.

81.  Mr Wong SC’s principal argument in opposition to any disclosure in relation to the transfers to SPEC was that the funds were sourced from a loan to Mr Liao by UBS (i.e. the First and Second Loans) rather than the said Sums. Even if the Second Loan was subsequently repaid with funds traceable to the said Sums, any proprietary interest in those funds would have been extinguished by virtue of the fact that they were used to reduce a liability to a third party.

82.  As a matter of principle, subject perhaps to the doctrine of “backward tracing”, Mr Wong SC’s submission is unassailable: see e.g. CY Foundation Group v Cheng Chee Tock & Others [2012] 1 HKLRD 532. Mr Wong SC submits, further, that there is no basis for any backward tracing in this case, and ordering disclosure on that basis would amount to an impermissible fishing exercise. He referred the court to, inter alia, Brazil v Durant [2016] AC 297, which rejected the proposition that backwards tracing should in general be possible whenever the satisfied debt was incurred in order to acquire an asset. Backward tracing would only be available if there exists a “co-ordinated scheme”, namely, an “overall transaction embracing the co-ordinated outward and inward movement of assets”. In the present case, Mr Wong SC argued, there is nothing to suggest any such “coordinated scheme” or “coordinated outward and inward movement of assets” – the mere fact that Mr Liao’s Account was overdrawn on 20 September 2012 does not give the plaintiffs “…a blanket right to seek disclosure on the alleged basis of potential backward tracing”.

83.  In my view, the picture is not as clear as that painted by Mr Wong SC.  This is not a simple case where trust monies have been deposited into an overdrawn account. Mr Liao’s Sub-account 36, with an opening balance of only EUR 40,000 plainly did had insufficient funds to make the two remittances totalling EUR 11,237,155.18 to LGT and ultimately to SPEC. On the face of the bank statements, a specific “time loan”, namely, the First Loan was obtained for that purpose (as opposed to merely drawing on an overdraft facility). It is also notable that the term of this “time loan” was extremely short – 7 days, particularly given the very substantial amount involved. It is unclear from the evidence why the term of this “time loan” was so short. However, it is likely that it was intended merely to be a bridging loan in anticipation of imminent funds coming in to repay the loan.

84.  It appears, however, that this did not happen, and a further “time loan” was obtained, namely, the Second Loan. Although the term of that loan was slightly longer – 30 days, this was likely still to be a bridging arrangement in anticipation of specific and imminent funds coming in, which transpired to be funds from SSL’s Account and traceable to the said Sums. It seems to me, therefore, that there is a serious issue to be tried that the movement of funds could have been co-ordinated, in that the funds ultimately remitted to SPEC were intended and anticipated from the outset to be sourced from the said Sums. This is obviously not a matter which I can or need to resolve at this stage on the limited evidence before the court.

85.  I also note that on Mr Liao’s own evidence, the remittances to LGT and SPEC were for the operations of Loyal Group. If this is true, as mentioned above, it is unlikely that the disclosure of the transactions concerning SPEC to the plaintiffs would involve significant prejudice to the defendants. Indeed, no such prejudice has been suggested by the defendants, other than the contention that this would amount to “impermissible fishing”. In the circumstances, I allowed the disclosure sought in these paragraphs. I would echo my observations in paragraph 61 above – if it transpires that the transactions with SPEC were in fact for the normal operations of Loyal Group (of which there is no evidence at the moment), it is at least unclear whether the preservation orders should be extended to cover the raw materials purchased or their proceeds.

Paragraphs 1(a), (b) and (d), 2(a), 3(a) and (b), 4(a) to (c) – Other “missing bank statements”

86.  In respect of these bank statements, I do not intend to delve into too much detail and burden an already lengthy judgment for an application of this nature. Mr Wong SC indicated that in relation to these paragraphs, he would rely on his 3 general objections which I have already dealt with above. I would simply repeat my observations here that the disclosure of these documents, most of which on their face are bank statements of entities within Loyal Group, is unlikely to cause serious prejudice to the defendants, and no such prejudice has been alleged. I have also considered the contents of Mr Lees’ affidavits and Mr Wong’s Report.

87.  As to statements for Mr Liao’s Sub-account 18 for 3 specific periods between 3 July 2012 and 31 March 2013 (§1(a)), these documents were identified as part of the “missing bank statements” in Mr Lees’ affidavit and were listed in Exhibit 2 of Mr Wong’s Report. To enable a fuller picture of the fund flow of the said Sums, I allowed the disclosure sought.

88.  As to statements for Mr Liao’s Sub-account 36 for 3 specific periods between 3 July 2012 and 31 March 2013 (§1(b)), these documents were identified as part of the “missing bank statements” in Mr Lees’ affidavit, and except for a slight difference in date for one period, were listed in Exhibit 2 of Mr Wong’s Report. To enable a fuller picture of the fund flow of the said Sums, I allowed the disclosure sought.

89.  As to statements for the bank account of Loyal Jiangyin for the period from 1 July 2012 to 31 March 2013 with the Bank of Communications Limited (§1(d)), these documents were identified as part of the “missing bank statements” in Mr Lees’ affidavit. To enable a fuller analysis of the fund flow of the said Sums, for the reasons given by Mr Lees, I allowed the disclosure sought.

90.  As to statements for SSL’s Sub-account 35 for the period from 3 July 2012 to 31 March 2013 (§2(a)), the disclosure of statements of SSL’s Account for this period had already been ordered by Lok J in the Bankers Trust Order. As can be seen from the bank statements, SSL’s Sub-account 35 forms part of the SSL’s Account. It appears to me, therefore, that the statements for this sub-account should have been disclosed by UBS pursuant to the Bankers Trust Order. I therefore allowed the disclosure sought.

91.  As to statements for Loyal HK’s account with UBS 334,905/00,18 (§3(a)), these documents were identified as part of the “missing bank statements” in Mr Lees affidavit and also included in Exhibit 2 of Mr Wong’s Report. To enable a fuller analysis of the fund flow of the said Sums, I allowed the disclosure sought.

92.  As to statements for Loyal HK’s account with UBS account no. 90000013985100 for the period from 1 July 2012 to 31 March 2013 (§3(b)), these documents were identified as part of the “missing bank statements” in Mr Lees affidavit. To enable a fuller analysis of the fund flow of the said Sums, for the reasons given by Mr Lees, I allowed the disclosure sought.

93.  As to statements for LGT’s account no. 0/334,902/00,12, which was a sub-account of LGT’s Closed Account, for 2 specific periods between 23 July 2012 and 31 August 2012 (§4(a)), these documents were identified as part of the “missing bank statements” in Mr Lees affidavit and formed part of Exhibit 2 of Mr Wong’s Report. To enable a fuller analysis of the fund flow of the said Sums, I allowed the disclosure sought.

94.  As to statements for LGT Account 15 for 3 specific periods between 23 July 2012 and 31 August 2012 (§4(b)), these documents were identified as part of the “missing bank statements” in Mr Lees affidavit and formed part of Exhibit 2 of Mr Wong’s Report. To enable a fuller analysis of the fund flow of the said Sums, I allowed the disclosure sought.

95.  Finally, as to statements for LGT Account 33 for 5 specific periods between 3 July 2012 to 31 March 2013 (§4(c)), these documents were identified as part of the “missing bank statements” in Mr Lees affidavit, and save for a slight difference in date for one period, these documents formed part of Exhibit 2 of Mr Wong’s Report. To enable a fuller analysis of the fund flow of the said Sums, I allowed the disclosure sought.

VI.   UBS’s Position

VII.   In relation to the 2017 and 2018 Banks Trust Summonses, UBS appeared at the hearing through its solicitors, and as one would expect, adopted a neutral position save that it would ask for the usual costs order that its costs be indemnified by the plaintiffs. Dr Wong SC indicated that the plaintiffs had no objection to such an order. I therefore made an order that the plaintiffs pay UBS its costs on an indemnity basis.

VIII.   Conclusion and Costs

96.  For the reasons above, I allowed the paragraphs of the various Summonses set out above.

97.  As to costs, I made the following orders, all on a nisi basis save for the orders in relation to UBS AG (parties are identified by reference to the counterclaim):

(1)  The 2017 Disclosure Summons: (a) costs of the hearing on 1-2 June 2020 (the “Hearing”) be to the 1st and 2nd plaintiffs, with certificate for two counsel, to be summarily assessed; and (b) other than the costs in (a), the costs of the application be the 1st and 2nd plaintiffs’ costs in the cause;

(2)  The 2018 Disclosure Summons: (a) costs of the Hearing be to the 1st and 2nd plaintiffs, with certificate for two counsel, to be summarily assessed; and (b) other than the costs in (a), the costs of the application be the 1st and 2nd plaintiffs’ costs in the cause, to be taxed on a common fund basis;

(3)  The 2017 Bankers Trust Summons: (a) costs of the application be paid by the 1st and 2nd plaintiffs to UBS AG to be taxed on an indemnity basis if not agreed; and (b) there be no orders as to costs of the application as between the 1st and 2nd plaintiffs and the 1st, 2nd, 4th and 6th defendants; and

(4)  The 2018 Bankers Trust Summons: (a) costs of the application be paid by the 1st and 2nd plaintiffs to UBS AG to be taxed on an indemnity basis if not agreed; (b) costs of the Hearing be to the 1st and 2nd plaintiffs, with certificate for two counsel, to be summarily assessed; and (c) other than the costs in (b), the costs of the application be the 1st and 2nd plaintiffs’ costs in the cause, to be taxed on a common fund basis.

98.  As to the costs of the Hearing, I have considered the skeleton bill of costs submitted by the 1st and 2nd plaintiffs and the list of objections raised by the defendants. Adopting a necessarily broad-brushed approach, I summarily assess costs at HK$800,000.

99.  Last but not least, I thank both teams of counsel and Mr Cheng for their assistance.